Procedural Requirements Preclude Court Challenge to the Office of Conservation's Established Units

In an apparent reaffirmation of the broad grant of authority to the Louisiana Commissioner of Conservation (“Commissioner”), the Louisiana Supreme Court recently reinstated the district court’s dismissal of a challenge to force pooled units and alternate unit wells as established by the Commissioner Gatti v. State, 2014 La. LEXIS 1804 (La.Aug. 25, 2014), reinstating the district court’s dismissal entered in Gatti, et al. v. State, et al. Suit No. 589,350, 19th Judicial District Court, East Baton Rouge, Louisiana. In Gatti, the plaintiffs filed suit against the Commissioner and numerous oil and gas companies challenging the Commissioner’s establishment of a forced pooled unit and the utilization of alternate unit wells for the development of said unit. As with other similar unsuccessful challenges, the Gatti challenge focused upon the unitization limitation that a unit is to be “the maximum area which may be efficiently and economically drained by one well” La. R.S. 30:9(B). While the quoted statutory language would appear to support the plaintiffs’ challenge, the use of alternate unit wells as approved by the Commissioner is a long time practice in our state.

Typically a unit order issued by the Commissioner establishing a forced pooled unit contains standard language providing that to promote efficient drainage of a pool, one (1) well is designated as the well for that unit. Pursuant to the power granted by La. R.S. 30:1, et seq. the Commissioner may force pool separately owned tracts, leases and other property interests in the units such that each tract, “shares in unit production in the proportion that the surface area of each such tract bears to the entire surface area of the unit.” Further the unit orders recite established case law, stating that unit operations are considered to be operations on each tract within the unit. The unit orders also state that should additional geological information be discovered which would require revisions to the unit boundaries, the facts should presented to the Commissioner at a public hearing.

Gatti, supra, presented an interesting substantive question which has been the subject of legal speculation for quite some time; particularly, whether the practice of permitting alternate unit wells for a unit is an allowed practice under Louisiana’s force pooling procedures. Similarly, if one unit (1) well is sufficient to actually drain a unit, why are alternate unit wells permitted within that unit.

While perhaps an opportunity for substantive answers was presented via Gatti, the ultimate decisions as entered in Gatti were limited to procedural challenges to the Court proceeding. The District Court found that the plaintiffs’ challenge was subject to the requirements of La. R.S. 30:12 governing challenges to an Order of the Commissioner and as such properly was required to have been raised in an administrative proceeding. On appeal, in Gatti v. State, 2014 La. App. Unpub. LEXIS 7 (La.App. 1 Cir.Jan. 15, 2014), the Louisiana First Circuit Court of Appeal issued an unpublished opinion which held that the plaintiffs’ challenge closely resembledEads Operating Company, Inc. v. Thompson, 93-2155 (La. App. 1st Cir. 10/7/94), 646 So.2d 948, writ denied, 95-0226 (La. 4/7/95), 652 So.2d 1345, wherein a challenge to the Commissioner’s statutory authority to issue certain unit orders was not subject to the administrative hearing requirements of La. R.S. 30:12. Therefore, the Appellate Court reversed the District Court’s ruling and remanded the matter for further proceedings. As noted above, the Louisiana Supreme Court granted writs and summarily reversed the Louisiana First Circuit Court of Appeal’s ruling and reinstated the District Court’s dismissal of the matter. Notably, out of the seven (7) Louisiana Supreme Court Justices, only four (4) joined in the opinion. One (1) Justice recused himself and two (2) voted to deny writs.

Although many interesting issues were attempted to be presented for decision in this matter, it is difficult to extrapolate any substantive indications from the involved procedural determinations. If you have any questions concerning this matter’s impact on you or your business, please contact one of our experienced attorneys.